Mass Transit Railway

Stock code: 0066.hk

Last close: HK$27.65

Entry: HK$27.50

Target: HK$30

Stop loss: HK$26.50

By Castor Pang

The Hong Kong government announced Tuesday that it will finance the construction of the Guangzhou-Shenzhen-Hong Kong Express Railway project, with Mass Transit Railway (MTR) Corporation set to operate the line.

This means MTR will have an stable source of revenue by 2014 or 2015. However, its huge land reserve remains one of its main attractions, as well as the prospect of sales of several key properties later this year. These factors point to stable profits for MTR over the next few years.

The company's share price did not rise with other local property stocks in recent trading and is thus trailing slightly behind, but a rebound this week has seen it rise above the previous downslide.

Its relative strength index (RSI) has also exceeded its peak in the last three months, indicating its climb is gaining momentum. Its total trading value also grew, a good reason to believe MTR's share price has made a technical breakthrough.

Investors are advised to buy this stock at HK$27.50 for a short-term rise to HK$30, but stop loss below HK$26.50.

The author is a strategist with Sun Hung Kai Financial Group.

China Construction Bank

Stock code: 0939.HK

Last close: HK$ 6.64

By Paul Lee

While China Construction Bank (CCB)'s FY07 results lack major positive surprises, the counter remains one of our mainland banking favorites due to its inexpensive valuation at a price-to-2008-earnings ratio of 14.2 times and a price-to-book value ratio of 2.7 times.

With a relatively low loan-deposit ratio of just 59 percent, the mainland's second-largest bank is well positioned to weather the People's Bank of China's possible sustained liquidity tightening in the months ahead.

CCB's FY07 results are in line with market expectations. While the 49 percent jump in the bottom line to 69.1 billion yuan does not look particularly impressive compared with the high-flying profits of its mainland peers, the growth was a respectable 62 percent after excluding a one-off 9-billion-yuan provision for retirement benefits from January 2008.

The robust results were driven by a 37 percent jump in net-interest income on the back of a 14 percent rise in loans and a 39-basis-point widening of the net interest margin to 3.18 percent. Fee-income growth was even more spectacular at 130 percent. The sharp rise in fee income has offset a foreign exchange loss of 7.8 billion yuan resulting from the appreciation of the renminbi.

After making an impairment provision of US$630 million on its US subprime securities, the carrying value of the securities at the end of FY07 stood at just $370 million, representing less than 1 percent of CCB's foreign exchange debt securities. Currently, 86 percent of CCB's foreign-currency bond portfolio is AAA-rated.

A group company(ies) of Taifook Research Limited make(s) a market in the securities herein covered and/or any warrants or options on these securities herein covered.

The author is an analyst with Taifook Securities.

China Mobile

Stock code: 0941.HK

Last close: HK$135

By Lai Wai-shing

China Mobile's first-quarter profits attributable to shareholders stand at 24.1 billion yuan, an increase of 37.2 percent year on year.

While its business earnings reached 93.02 billion yuan for a 19.7 percent growth in the same period, its profits EBITDA (earning before interest, depreciation and amortization) rose by 22.2 percent, and EBITDA profits rate increased from 52.4 percent in 2007 to 53.5 percent. This proves the company has maintained a good profits margin while developing the rural market.

The company's core business is still looking good in the foreseeable future in terms of development momentum.

Its monthly average revenue per user (ARPU) has slipped from 91 yuan last year to 82 yuan, but this is mainly because it has been focused on cultivating the rural market, where consumption is relatively weak.

Another reason is that its customer base has grown to 392.14 million subscribers by the end of March, which has led to a growth pattern of more sales at a low profit margin, high net profits growth and a year-on-year jump of 41.8 percent in total call duration as a result of price adjustment.

Its value-added services have also been growing fast, such as a 31.9 percent rise in short messages.

China Mobile is expected to continue expanding the rural market, where consumption is relatively weak at the moment but the potential enormous, and maintain the growth pattern of more sales at a small profits margin and capitalizing on scale effect.

It should also profit from the 3rd-generation (3G) mobile telephone service once large-scale commercial deployment begins.

The author is a senior independent commentator.

(HK Edition 04/24/2008 page3)